THE PROCESS FOLLOWED BY PPP DATA. ON THE PROPERTIES OF LINEARITY TESTS

Ivan Paya () and David Peel

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: Recent research has reported the lack of correct size in stationarity test for PPP deviations within a linear framework. However, theoretically well motivated nonlinear models, such as the ESTAR, appear to parsimoniously fit the PPP data and provide an explanation for the PPP ¿puzzle¿. Employing Monte Carlo experiments we analyze the size and power of the nonlinear tests against a variety of nonstationary hypotheses. We also fit the ESTAR model to data from high inflation economies. Our results provide further support for ESTAR specification.

Keywords: ESTAR; Real Exchange Rate; Size; Linearity Test. (search for similar items in EconPapers)
JEL-codes: C15 C22 F31 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2005-06
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2005-23.pdf Fisrt version / Primera version, 2005 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2005-23

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